A few words about innovation and leadership

Posted on September 3, 2021 by Eugene Ivanov

I remember reading, a few years ago, a report with inspiring title “Unleashing the power of innovation.” To get a sense of what’s going on with innovation around the world, the authors of the report approached 246 CEOs and served them with a set of softball questions.

The respondents didn’t disappoint. Yes, we see innovation as a priority to our companies. Yes, we consider ourselves innovation leaders and visionaries as opposed to being simply sponsors of innovation programs. Of course, strong business leadership and right culture are the key ingredients for innovation success. Sure, we take personal responsibility for directing and inspiring innovation.

Nice, isn’t it.

My sense of tranquility was suddenly shaken, though, when I reached the last question of the survey asking about constraints stopping the CEOs from “being more innovative.” Three top answers to this question were: “Financial resources,” “Existing organization culture” and “Lack of talent.”

Wait a minute! Why do these captains of industry view the three constraints as something that is completely out of their control, like a natural disaster? Is it not within the authority of a CEO to allocate enough financial resources to pursue innovation activities? Is it not the responsibility of a CEO to implement corporate policies fostering the culture of innovation? Is it not a CEO’s job to create conditions attracting and retaining innovative employees? Is that how they take personal responsibility for directing and inspiring innovation?

I can’t overstate it: nothing will happen in any organization aspiring to innovate without active personal involvement from the C-suite. Nothing.

Unfortunately, over the years, many CEOs have mastered the art of talking about innovation, delivering well-rounded answers to friendly questions in non-confrontational surveys and interviews.

But a frighteningly large number of them still demonstrate what I call a “cloudy vision” of the very fundamentals of the innovation process. Too many CEOs take a hands-off approach to innovation management, proudly claiming instead that “in our company, innovation is everyone’s job.” And while talking non-stop about the culture of innovation, they neglect to introduce specific corporate policies encouraging and rewarding their employees’ innovation efforts.

Acts of leadership can come in many shapes and shades. On occasion, it can be a sentence said in the right place at the right time. A story that happened some time ago illustrates my last point.

A large multi-national company invited me to a ceremony celebrating the launch of a major open innovation initiative in one of its leading R&D divisions. I was representing a company that was providing an online platform supporting the initiative.

Highlighting the importance of the occasion, the ceremony was attended by a very big R&D boss from the corporate headquarters. In his pep talk, the boss (I’ll call him John) spoke about the virtues of open innovation, the importance of the new initiative, and the need for everyone in this location to get involved. He concluded his talk with a customary “Any questions?”

A young fellow in the crowd of scientists raised his hand. Apparently sensing an opportunity to impress the high-profile visitor, he said: “John, I’m so busy with my current projects. How can I find time to run an open innovation campaign and then go through a pile of external submissions, while simultaneously running multiple experiments?”

John looked back at the young fellow for a few long seconds (too long, I thought) and then said: “Look, we’ve charged you with solving a problem that is important to our company and we want you to succeed. I personally don’t care how you do that. If running experiments is enough, fine. However, if you fail, we’ll ask you: what have you done–in addition to running your own experiments–to have this problem solved? And please, don’t tell us then that you were too busy to go through a pile of external submissions.”

By the expression on the young fellow’s face–and by the silence that suddenly filled the auditorium–I realized that John’s message got across. I smiled to myself. By saying just a few words, John had managed to achieve what in many organizations takes years: he helped create a culture of open innovation in this R&D division.

Leadership matters. A cliché? Sure, but it does.

Image credit: Jehyun Sung on Splash

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Investing in R&D spending

Posted on September 1, 2021 by Eugene Ivanov

Innovation is rapidly becoming the key factor defining America’s economic growth, prosperity, and competitiveness on the world stage. It also has a profound effect on national security, as highlighted in a 2019 report composed by the Council on Foreign Relations (CFR).

There is enough evidence suggesting that American innovation is in a decent shape. Experts point to the lightning-speed rollout of the RNA-based COVID-19 vaccines and an impressive list of ‘fast and frugal’ innovations developed in response to the COVID-19 pandemic. One can also celebrate the unprecedented level of the pandemic-driven cooperation between U.S. academic institutions and private companies. And did not the Global Innovation Index 2020 name the United States the 3rd most innovative country in the world (after Switzerland and Sweden)?

And yet, I see a host of problems, with deep and systemic roots in the U.S. business and political environment, that have a potential to damage American innovation in the long term. One of them is a growing shortage of novel ideas, a shortage made worse by the declining quality of these ideas and the increased cost of getting them.

Government is not the problem. The lack of it is

What’s going on? Why is the well of innovative ideas in the U.S. drying up?

The answer is simple: insufficient R&D funding.

In the decades following World War II, entirely new sectors of the U.S. economy have been created (jet aircraft, modern-day pharmaceuticals, microelectronics, satellites, digital computers, etc.), thanks to a heavy infusion of public money, with the federal government contributing more than 50% of R&D expenses.

Things have changed. Although the total spending on R&D in the U.S. has remained steady for the past years, at 2.5-2.8% of GDP, only 30% of the money now comes from the federal government; 70% is contributed by the private sector. With its focus on rapid ROI, will private sector spend money on fundamental and, therefore, potentially risky R&D projects? No.

The number and quality of innovative ideas are declining because sources of new scientific discoveries in the U.S. are gradually drying up. Yes, the industry can still generate incrementally innovative combinations of old ideas, but it will fail to create breakthrough innovations.

President Biden’s plan to dramatically increase funding for fundamental research is a promising step in the right direction. Unfortunately, there is no institutional protection for the increased R&D budget, which may be easily slashed again by any future administration.

There is one more troubling thing: the lack of a coherent public innovation policy. Previously, I showed that there was a strong correlation between a country’s innovation potential and the level of democratic developments in this country (as assessed by the Democracy Index 2019). Although all five individual components of the Index positively correlated with innovation, the strongest correlation occurred for Functioning of Government. And yet, the above-mentioned CRF report specifically criticized the weak role the federal government plays in shaping the U.S. innovation policy.

Investment vs. expense

It amuses me how different an attitude toward public and private R&D funding can be.

It’s a common place to call private R&D funding “investment.” (An entry to Investopedia reads: “Why You Should Invest in Research and Development (R&D).” At the same time, public funding of R&D is almost always characterized as an “expense” (or “spending”). Note that in the federal budget, R&D funding falls in the discretionary spending bucket. (Investopedia defines discretionary spending as “a cost that a business or household can survive without, if necessary.”) Apparently meaning that as a country we can survive without spending money on R&D.

I can see where this difference comes from. ROI is the principal metric that the private sector uses to assess the effectiveness of its investments. Given that the industry is spending most of its R&D money (at least 70%, according to a popular model) on short term projects, ROI can more or less be easily calculated. Your investment either works or doesn’t, but at least you know what happened to the money.

Not so with public R&D spending. Given that public money goes mostly to basic science, with the outcomes being uncertain for many years to come, measuring ROI becomes more difficult, creating an impression that there is no “return” on public R&D money. No matter what happens to this money, the R&D funding is habitually considered an “expense.” Worse, some folks call it “waste.”

An underused money machine

Benjamin Jones of Kellogg Scholl of Management strongly disagrees. Not only does he argue that public R&D spending is not a “waste”; he insists that the U.S. is greatly underinvest in science and innovation. Jones goes as far as calling this underinvestment a “market failure”.

Market failure? Is Jones serious?

He is. In a recent report pointedly headlined “Science and Innovation: The Under-Fueled Engine of Prosperity” Jones reviews a body of recent research aimed at calculating the so-called social return on R&D investment (by using numerous economic models and applying them to different industries in varying settings). 

Jones’s conclusion is nothing short of an eye-opener. The social rate of return on R&D expenditure in the total U.S. economy appears to exceed 50% (yes, this isn’t a typo. 50%). That means that $1 of public money invested in innovation produces, conservatively, at least $5 in social benefits. (The rate varies over different industries, being, for example, 40% for agricultural R&D investment and exceeding 55% for industrial.)

This is much higher than a typical private return on R&D investment (or on any other investment, for that matter). Not to mention that this is many multiples of stock market returns or the interest on government bonds.

Take, for example, the still fresh in memory Operation Warp Speed. The public investment cost of accelerated COVID-19 development was approximately $25 billion. It is less than 1% compared to the total $3 trillion the U.S. government has spent in pandemic relief through March 2021. And speaking in terms of human lives, the entire cost of the Operation Warp Speed was lower than the cost of losing American lives in one day in December 2020 (as measured by the “value of a statistical life” approach).

In Jones’s words, “the science and innovation system is akin to having a machine where society can put in $1 and get back $5 or more. If any business or household had such a machine, they would use it all the time.”

And yet, this money-making machine is hugely underutilized (justifying Jones’s words “market failure”). Why? First, because of a decade-long habit to view it and “money-burning” machine instead. Second, a lack of clear understanding of how to use this machine properly.

This needs to change, and I’ll get back to both points in my future posts.

Image credit: https://www.wikigallery.org/wiki/painting_304950/%28after%29-Marinus-Van-Reymerswaele/The-Money-Changers

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A boomerang drug

Posted on August 18, 2021 by Eugene Ivanov

On June 7, the U.S. Food and Drug Administration (FDA) approved a new treatment for Alzheimer’s Disease (AD), its first in nearly two decades. Manufactured by Biogen (a biotech company based in Cambridge, MA) and called Aduhelm, the drug was supposed to become a cause of celebration by millions of Americans diagnosed with AD. Instead, the Aduhelm approval may well be remembered as the most controversial, if not scandalous, FDA’s decision in the 115 years of its history.

A nasty disease

Let’s first refresh what we know about AD, a truly nasty disease. It is a progressive neurodegenerative disorder that destroys memory, abstract thinking, and cognitive function. It’s the most common cause of dementia in humans (60-80% of all cases), affecting as many as six million Americans and being the sixth leading cause of death.

The risk of getting affected by AD doubles every five years after the age of 65, meaning that with 10,000 baby boomers turning 65 every day, the number of Americans with AD may reach 14 million by 2050.

So far, there has been no real AD cure. Five drugs that were approved in the U.S. for AD treatment, the last one in 2004, can only offer a brief respite from some symptoms in some patients. Worse, the development of AD therapies had been a total disaster: over the period of 2002-2012, 244 drug candidates have been tested in 413 clinical trials, but only one has been approved. This is a 0.4% success rate–or, if you prefer, a 99.6% failure.

A questionable clinical data

Not surprisingly, the results of two Biogen’s clinical trials assessing Aduhelm were eagerly expected—and they were a clear disappointment, yet again. In fact, the trials were halted in 2019 as data showed that Aduhelm provided no benefit to patients’ cognitive function. Moreover, the drug wasn’t even sufficiently safe: approximately 40% of the patients experienced brain swelling and hemorrhaging.

However, Biogen plowed on. The company conducted another analysis of the same data and found that at high doses, Aduhelm showed a 22% reduction in cognitive decline. Encouraged by this newly discovered interpretation, Biogen applied to the FDA for approval.

A controversial approval

An advisory committee convened by the FDA to review the application was almost anonymous in its rejection of Aduhelm: 10 of the 11 experts on the panel opined that that clinical data did not support the approval of the drug (the 11th panelist voted “uncertain.”).

While the FDA is not formally required to follow the advisory committee’s recommendations, it usually does so, especially with the vote count like this one. So it was obviously a great surprise when referring to the extreme need for an AD treatment, the FDA has still decided to approve Aduhelm. In protest, three members of the advisory committee have resigned.

A shocking price tag

And then came another shock, this time in the form of the price tag. Biogen announced that the Aduhelm treatment would be priced at $56,000 annually (not including costs for additional testing and scans patients would need). Given that initially, the FDA set no limits on who will be treated with the drug—and given the number of AD patients in the U.S.–the projected cost of Aduhelm only for Medicare was estimated to be about $57 billion per year, which is more than Medicare Part B spends on all other drugs combined. 

A quick fallout

It was at this point that the pendulum began swinging back. A couple of weeks later, the FDA issued a revised guidance for using the drug, recommending it to be used not by all AD patients, but only by those with mild symptoms. With this restriction, only two million Americans would be eligible for the treatment.

And then, the omnipresent New Your Times published an article describing a cozy huddling of the FDA officials with Biogen’s representatives during the approval process. What initially looked as an example of the FDA’s incompetence suddenly began smelling as something potentially more sinister. At the end of June, two congressional committees launched reviews into the Aduhelm approval process.

It’s vitally important to get to the bottom of what happened behind the FDA’s walls during the approval process. I personally would also be very interested to know what role, if any, was played by so-called patient groups like the Alzheimer’s Association, the largest non-profit funder of AD research.

In the name of the patient

One of the most popular recent trends in healthcare is the drive to what some call “consumer-centric healthcare.” Among many other things this term implies a greater patient involvement in every step of the healthcare delivery process.

The emphasis on patients’ needs has triggered the rapid proliferation of activist groups calling for patients taking a more active role in important healthcare decisions. While any attempts to listen to the proverbial voice of the customer can only be welcomed—be it healthcare or any other customer-oriented industry—one ought to remember that the history of patient group involvement in healthcare decision making process is not without controversy.

Back in the 1980s, the outbreak of AIDS brought to life a voiceful and influential advocacy on behalf of AIDS patients. Having launched an unprecedented in its magnitude public campaign, the AIDS patient advocates succeeded in persuading the U.S. policymakers to shift substantial amounts of NIH funds to HIV/AIDS research. The powerful infusion of taxpayers’ money helped rapidly identify the origin of the HIV/AIDS epidemics and then develop life-saving treatments.

Yet many critics complained that by receiving the amount of NIH funds that wasn’t commensurate with the number of HIV/AIDS patients, the program had siphoned much needed resources away from other, more important, public health needs.

It appears that the case of AIDS is hardly exceptional. In fact, it points to a general trend: various patient groups actively influencing federal funding in favor of “their” diseases.

A 2012 study conducted by Rachel Kahn Best from University of Michigan follows how disease advocacy organizations lobbied Congress for a greater share of NIH funding. Using data on 53 diseases over 19 years, Kahn Best showed that for each $1,000 spent on lobbying for a specific disease, there was an associated $25,000 increase in research funds for this disease the following year.

What is wrong with that, one might ask? Well, the problem is that the amount of NIH funds allocated for any particular disease is being determined not by some objective parameters associated with this disease—for example, by the so-called burden of disease–but rather by the strength of a corresponding patient advocacy group and the amount of money it spends on lobbying members of Congress.

Predictably enough, when you have winners, you have losers, too. Kahn Best points out that diseases affecting primarily women (except for breast cancer) and African Americans tend to receive lower levels of funding because of weaker lobbying.

Besides, adequate funding isn’t provided to so-called stigmatized diseases, such as lung and liver cancer, associated with patients’ “bad behavior” (smoking for lung cancer and alcohol consumption for liver cancer). Year after year, both diseases received smaller funding than would have been predicted based solely on patient mortality.

While welcoming public involvement in healthcare decisions, we ought to find ways restricting the influence of special interests—and money they bring along—on the healthcare decision making process. I know, I know.

A boomerang drug

I’m sure that the Aduhelm approval was considered by many FDA folks as a winning shot at improving the badly damaged reputation of the agency. Instead, Aduhelm became a boomerang drug of sorts adding insult to injury.

Calls to reform the FDA become louder. Can it be reformed?

Image credit: https://asia.nikkei.com/Business/Pharmaceuticals/Eisai-Biogen-Alzheimer-s-drug-set-for-use-at-300-plus-US-hospitals-exec

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The quotes we choose

Posted on July 13, 2021 by Eugene Ivanov

Long time ago, a boy growing up in Russia, I came across a quote by President John F. Kennedy. It impressed me so much that I wrote it down and learned by heart. Many years later, already in the United States, I found it in English. Here it is:

I’m certain that after the dust of centuries has passed over our cities, we, too, will be remembered not for victories or defeats in battles or in politics, but for our contribution to the human spirit.

I wonder what President Kennedy—having presided over the defeat of the Bay of Pig Invasion and numerous victories over ladies—had specifically in mind when speaking of the “contribution to the human spirit”? His inaugural address? The Moonshot Program?

Now, I prefer a quote by another American President, Calvin Coolidge:

The business of America is business.

There is no question in my mind that as far as “business” is concerned, this country has a lot to be proud of.

In June, my wife and I were vacationing in Vermont, the birthplace of President Coolidge. One day, we bumped into a small store, and I was amused to see a hand-made poster with yet another Coolidge’s quote stuck in the window. This is what it read:

Nothing in this world can take the place of persistence. Talent will not: nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not: the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan “Press On” has solved and always will solve the problems of the human race.

The only point in this Coolidge’s quote I’d seriously challenge is his take on education. Whether in his time “educated derelicts” were such a common thing, I know not, but today, it’s uneducated derelicts who, in my opinion, represent a larger, growing problem.

I do hope that the future of this country won’t be decided in politics or, God forbid, in battles. I do believe that this future is in flourishing business contributing to the human spirit. And I do think that the American future will be properly secured only if this country preserves and expands its leadership position in innovation.

So, at a risk of sounding preposterous, let me offer the following line:

The business of America is innovation.

How about that?

Image credit: my family album

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Did the members of the crowd reach the verdict?

Posted on July 9, 2021 by Eugene Ivanov

There are some professions that inspire awe just by the sound of their name. Professional fact-checker, a person tech companies such as Facebook and Twitter hire to identify false or misleading claims, is one of them. Isn’t it cool to be someone who always knows the truth? How special do you have to be to tell other folks what to believe in?

It turns out that there is nothing special in professional fact-checkers after all. An international team of authors explored a crowdsourcing approach to fact-checking. Participants, recruited from an online labor market, were asked to rate randomly selected articles just by reading the headline and the lede (the opening sentence or paragraph) of the article. The authors found that a crowd of untrained laypeople as small as 10 people was as good or even better at fact-checking than three professional fact-checkers who, incidentally, had a chance to read the full article.  

This finding can surprise only someone who never heard about crowdsourcing (or still confuses it with crowdfunding). Over the past 10-15 years, numerous organizations–including corporations, governmental agencies, and nonprofits–have adopted crowdsourcing as a tool to help them address their most pressing technical and business challenges.

Crowdsourcing has also been applied to public policymaking: from writing state and city constitutions to creating “smart cities.”

Now, a group of authors led by Kyle Bozentko from the Center for New Democratic Processes want to make crowdsourcing an intrinsic part of our democratic decision-making process. They call their idea Citizens’ Juries.

As the name implies, Citizens’ Juries will be comprised of small groups of people (12-24 members) and be convened for 3-8 days of moderated deliberations on a specific topic. Depending on the topic, the jury could include people from the general population or be “custom-selected” based on characteristics relevant to the policy issue at hand like age, gender, or race. (For example, a youth citizen’s jury could be convened to study student loans.)  The expectation is that serving as a microcosm of the public, Citizens’ Juries will bring the diversity of perspectives, interpretations, and heuristics that is so desperately lacking in our traditional, “expert-based,” decision-making process.

Sure, to make Citizens’ Juries work, a series foundation of organizational and legal bricks needs to be built first, and the vehement resistance from professional nay-sayers is all but assured. But as someone who witnessed crowdsourcing creating value in real life—and as someone who feels that our political ecosystem is rapidly becoming uninhabitable—I’d give the idea a chance.

Image credit: https://www.dreamstime.com/royalty-free-stock-images-female-attorney-addressing-jury-image29662899

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3 best innovation team formulas (and when to ignore them)

Posted on June 10, 2021 by Eugene Ivanov

This article first appeared on Qmarkets blog in 2017 and is reproduced here with some modifications.

You’ve heard this cliché many times before: innovation is all about people. Even if you’re an avid fan of AI, you hardly expect robots replacing humans as innovators any time soon. And if you agree with another popular cliché, the one saying that innovation is a team sport, you will come to a natural conclusion: to pursue a corporate innovation project, you need a dedicated innovation team.

Do you need an innovation team?

Or maybe you don’t. Many folks don’t believe in structured innovation arguing that any ‘structure’ kills creativity and stifles innovation. Even some innovation experts claim that ‘innovation is everyone’s job.’

The notion that “innovation is everyone’s job” is quite popular in many companies. Why? Because it allows their leadership teams to adopt a hands-off approach to innovation process. It obviously takes time and effort to formulate the company’s innovation strategy, align it with the corporate strategic goals, and identify key business problems to solve. In contrast, it’s much easier to announce an open season for ‘ideas,’ launch an innovation hackathon or two and then claim that the collective wisdom of the whole company has been harnessed. (The popularity of this hands-off approach to innovation can be at least partially attributed to the proliferation of easy-to-use innovation management platforms.)

And yet, most corporate innovation leaders do understand the need and value of creating a dedicated innovation team. To be sure, every employee in an organization should ideally take part in innovation projects, but it’s the ultimate responsibility of the innovation team to take ownership of the process: to make it efficient, measurable, and accountable. Anyone with a glimpse of corporate experience knows that when ‘everyone’ is responsible for something, no one is.

Innovative people for innovative teams

And here we come to an important question: how this innovation team should be formed? Several approaches exist.

The first approach emphasizes personal skills of the team members. That’s why you can often hear that the best way to staff your innovation team is to hire…innovative people. Great advice, of course, but unfortunately, with limited practical value. This is not to say, however, that more specific directions are completely lacking. For example, a 2017 publication lists five ‘innovative’ qualities each member of the innovation team is supposed to possess:

  • Leapfrogging mindset: a desire to view the world with the goal of changing it.
  • Complementary knowledge: the expertise that will help your organization create new technology or a new business model.
  • Strategic relationships: the existence of a strong network of business partners.
  • Ambiguity tolerance: the capacity to make decisions based on limited data.
  • Optimistic persistence: the risk-taking mindset needed to persist through the tough times.

Although I wholeheartedly agree with all five suggestions, I nevertheless suspect that most of corporate HR departments, even equipped with advanced evaluation tests, will have troubles with finding enough candidates meeting such a high standard.

Who is your partner?

The second approach pays little attention to the individual skill sets of the team members, but stresses instead the need for an optimal mix of individuals the team is composed of. This approach specifically focuses on the functional roles each member of the team plays in the project. For example, it was suggested that each innovation team should include nine innovation roles of which the most important are the following five:

  • Revolutionary: team member generating and sharing ideas.
  • Connector: team member bringing people together.
  • Customer Champion: team member responsible for interactions with customers.
  • Magic Maker: team member responsible for implementing developed ideas and solutions.
  • Evangelist: team member creating a ‘buzz’ about the project and its results within the organization.

This approach is obviously much more practical than the first. In fact, many organizations have already adopted the ‘spirit’ (if not the exact ‘letter’) of this approach by creating innovation ‘joint task forces’ composed of representatives from different corporate units and functions (or locations, if appropriate): R&D, sales and marketing, customer service, finance, legal, HR, etc.

Implicit in the formation of an innovation team composed of members belonging to different parts of an organization is a belief that this team can only be successful if it includes people with diverse professional expertise and experience. In recent years, this concept of diversity was augmented by a growing body of evidence showing that socially diverse groups (that is, those with a diversity of race, ethnicity, gender, and sexual orientation) are more innovative than socially homogeneous groups.

Research shows that socially diverse groups are better at solving complex problems not only because people with different backgrounds bring new information, but also because the mere presence of individuals with alternative viewpoints forces group members to work harder to get their own points across.

This is good news for HR managers in charge of innovation teams: in our rapidly globalizing workforce environment, finding people with diverse professional, personal, and social attributes is much easier than chasing rare individuals with nebulous qualities such as ‘leapfrogging mindset.’

It’s all about process

There is the third approach to the formation of innovation teams. This approach emphasizes not the team composition or individual skills of its members, but the way the team operates. The logic behind this approach was eloquently articulated in a 2015 article about Google. The article argues that the composition of a team matters much less for its success than how the team members interact, structure their work, and view their contribution. The article listed five key factors that set apart successful Google teams:

  • Psychological safety: team members taking risks without feeling insecure or embarrassed.
  • Dependability: team members counting on each other to do high-quality work.
  • Structure & clarity: the availability of clear goals, roles, and execution plans for each team member.
  • Meaning of work: team members working on something that is personally important for them.
  • Impact of work: team members believing that their work matters.

Characteristically, it is the first factor, psychological safety, which was by far the most important of the five. The safer team members felt with one another, the more likely they were to admit mistakes, work together, and take on new roles. All this obviously positively affected pretty much every aspect of their work.

The power of this specific example in large part derives from the fact that it comes from Google, arguably one of the world’s most innovative companies, because the very notion that innovation requires taking risks without fear of negative career repercussions is hardly new. We all used to hearing calls to ‘fail fast and fail often’ (or even to ‘celebrate failure’) as a surrogate invitation to innovate.

Unfortunately, while voiceful in promoting risk-taking, relentless experimentation, and learning from mistakes (all being parts of the elusive ‘culture of innovation’), companies fail to introduce specific corporate policies that would encourage and reward such a behavior of their employees.

What can be done?

Previously, I proposed two such specific and actionable corporate policies.

  • First, I proposed placing employees involved in strategic innovation projects on fixed-term (tenure-like) employment contracts, as opposed to employment-at-will. This proposal is based on a 2001 study showing that labor laws making it more difficult to fire employees increase their participation in corporate innovation activities.
  • Second, I proposed making stock option grants, as opposed to cash bonuses and other monetary rewards, the principal incentive for engaging employees in innovation projects. This proposal is based on a 2015 finding that companies offering stock options to non-executive employees were more innovative and that the positive effect of stock options on innovation was more pronounced for longer-term grants.

In other words, even before starting to form individual innovation teams, provide all employees with incentives to engage in innovation activities along with immunity for failed innovation projects. Who knows, you may immediately discover that the number of innovative people in your organization is larger than you expected.

Image credit: Leon on Unsplash

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A Case of Innovation Foreboding: 3 Things That Can Damage U.S. Innovation Long-Term

Posted on June 7, 2021 by Eugene Ivanov

When it comes to complex things, the proverbial glass is never full; it’s only half-empty. On the other hand, the glass is never empty; it’s always half-full.

The glass analogy perfectly applies to U.S. innovation.

In fits and starts, the U.S. economy has begun recovering from the devastating effects of the COVID-19 pandemic. Yet, the pandemic shocks, which will be felt for a long time ahead, have already forced many organizations to change the ways they do business. Almost every operation has been affected: from the manner firms talk to their customers to the logistics of product delivery to maintaining channels of communication between employees.

Will corporate innovation be spared the troubles of adjusting to the ‘new normal’?

Some people don’t even think that anything particularly bad has happened to U.S. innovation at all. Folks who prefer to believe that the glass of U.S. innovation is at least half-full point to the lightning-speed rollout of the RNA-based COVID-19 vaccines and impressive list of ‘fast and frugal’ innovations developed in response to the pandemic. They also celebrate the unprecedented level of the pandemic-driven cooperation between U.S. academic institutions and private companies. And, hey, did the Global Innovation Index 2020, an annual ranking of the world’s innovation capacities, not name the United States the 3rd most innovative country after Switzerland and Sweden?

Houston, do we have a problem?

We do. In fact, we have a host of problems. One of them, obviously pandemic-related, is ‘covidization’ of science, a dangerous ongoing trend of shifting research funding and, consequently, research activities to the field of infectious diseases at the expense of other areas of fundamental medical research. Others have deep and systemic roots in U.S. business and political environment, and in the space below, I highlighted three problems that, in my opinion, can damage U.S. innovation long term.

The well of innovative ideas is drying up due to insufficient R&D funding

Everyone would agree that ideas are the livelihood of innovation. Many also are used to believe that novel innovative ideas are plentiful and cheap, a notion solidified in a popular slogan “ideas are a dime a dozen.”

As I argued before, this wide-spread conviction that we are swimming in an ocean of cheap innovative ideas is no more than a myth. Available evidence shows that the U.S. is facing a growing shortage of novel ideas. Worse, the cost of getting these ideas is growing while their quality seems to be declining. Consider this: by the end of 2019, the venture capital industry had accumulated a whopping $121 billion in so-called “dry powder,” the money for which venture capitalists failed to find ideas to invest in. In other words, ideas might be plentiful and cheap but at the same time not worth of investing money in them.

Where should novel ideas come from in the first place? The answer looks obvious: from R&D, where else?

Exactly, and here is the root of the problem. In the decades that followed World War II, entirely new sectors of the U.S. economy (jet aircraft, modern-day pharmaceuticals, microelectronics, satellites, digital computers, etc.) have been created, thanks to a heavy infusion of public money, with the federal government contributing more than 50% of R&D expenses.

Things have changed since. Although the total U.S. spending on R&D has remained steady for the past years, at 2.5% of GDP, only about 30% of the money now comes from the federal government, whereas 70% of it is contributed by the private sector. With its focus on rapid ROI and competition, will private sector spend money on fundamental and, therefore, potentially risky R&D projects? No.

Sure, the industry can still generate incrementally innovative combinations of old ideas–which indeed may be plentiful and cheap–but it will likely fail to create breakthrough innovations.

President Biden’s proposal to dramatically increase funding for fundamental research along with the elevation of the Director of the White House Office of Science and Technology Policy to the cabinet-level position are promising steps in the right direction. Unfortunately, there is no institutional protection for the increased R&D budget, which may be easily slashed again by a future Republican administration.

The pandemic has disrupted existing innovation networks

A major question, the answers to which are about to start emerging, is to which extent massive shift to remote work has affected the country’s ability to innovate.

Following the initial euphoria over the fact that remote work did not immediately destroy the corporate world, sober voices of concern are heard. Experts warn that online communications, the hallmark of remote work, are characterized by lower information sharing; that means reduced exchange of ideas between members of the innovation teams.

Besides, and perhaps, more consequential, remote work has essentially eliminated serendipitous interactions, unplanned encounters between employees working in close proximity to each other. Serendipity is believed to play a central role in the development of new collaborative partnerships that are crucial for the sustained corporate innovation process—and, as such, serendipity represents one of the driving forces of innovation.

American history already knows one example of a sudden disruption of innovation networks, Prohibition of 1920-1933, when government actions abruptly intervened in the established pattern of people-to-people interactions. This had a profound negative effect on the U.S. corporate innovation. 

Prohibition-induced effects on innovation had one characteristic feature: they didn’t change the scale or the identity of the individuals within innovation networks. They just disrupted established ways people belonging to the networks communicated with each other, and that was enough to damage the whole innovation process.

This is exactly what we see today: innovation budgets are still there (or at least most of them), people involved in the innovation activities, too. But the way these people interact has been dramatically changed by pushing them behind computer screens in their home offices.

The Prohibition case teaches us another lesson: while the innovation input fell dramatically in the years immediately after the Prohibition onset, it rebounded over time, meaning that affected individuals gradually rebuilt their informal social networks. As America gradually opens, and folks return to offices, innovation networks will be re-established. How long it will take, and how innovative the restored innovation network will be, remains to be seen.

The growing politicization of science

In general, Americans trust science. In fact, they trust scientists as highly as military and much higher than religious and business leaders, and, not surprisingly, elected officials.

Unfortunately, a troubling trend has emerged over the past 40 years: the growing distrust in science that has been specifically driven by conservatives. (The trust in science remains steady among moderates and the liberals.)

So far, this distrust in science among the conservatives has been mostly manifested by their skepticism about anthropogenic climate change. However, the COVID-19 pandemic has expanded the front lines of this ‘war on science.’ In December 2020, the Pew Research Center reported that while 84% of Democrats considered COVID-19 as a major threat to public health, only 43% of Republicans agreed. The same ‘blue vs. red’ divide can be seen over seemingly non-partisan issues like wearing masks and COVID-19 vaccination.

Research shows that distrust in science among the conservatives correlates with their unwillingness to support it. Taking to the extreme, this trend may result in increasing ‘defunding science’ both in the Republican-controlled states and, worse, at the federal level.

Image credit: DEVN on Unsplash

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Does predicting the future have a future?

Posted on May 26, 2021 by Eugene Ivanov

A popular joke attributed to a bunch of historical figures says: “It is difficult to make predictions, especially about the future.”

How true. Writing for the WIRED magazine, Paul Ford described his recent experience of reading The Book of Prediction, a 1980 anthology about what life would be in 50 years. Ford’s summary of the Book’s predictions is short and unambiguous: “All predictions are wrong.” 

It always amuses me how seemingly smart and competent people can say something that is so blatantly stupid (in hindsight, of course).

“Everything that can be invented has been invented” (Charles Duell, Commissioner of the U.S. Patents Office, 1899)

“The atomic bomb will not go off, and I speak as an expert in explosives” (Adm. William Leahy to President Truman, 1945).

“There is no reason anyone would want a computer in their home,” (Ken Olson, President of Digital Equipment Corp., 1977).

But let’s not ridicule folks living a hundred or even 40 years ago, for the human ability to predict the future has hardly improved ever since. Take, for example, the March-April 2020 issue of the MIT Technology Review. Headlined “The Prediction Issue,” it features a dozen or so leading futurologists predicting which technology trends will dominate in 2020-2030. Characteristically, none of the proposed trends even mentioned the threat of a worldwide pandemic like the one that is currently ravaging the globe.

It appears that with the exception of Bill Gates (who, being neither a professional futurologist nor, for that matter, a professional epidemiologist, predicted a pandemic caused by a highly-infectious virus back in 2015), experts have particularly tough time with foreseeing disease outbreaks. A case in point is the 2019 Global Health Security Index, the first comprehensive assessment of the health security capabilities across 195 nations. The Index specifically focused on nations’ preparedness for infectious disease outbreaks that can lead to international epidemics and pandemics. (Sounds to me exactly like COVID-19.)

To the credit of its authors, the Index finds no single fully prepared country: the average overall score among all 195 countries was 40 of a possible 100.

But what genuinely surprised me were the scores that the Index assigned to individual countries. The United States led the world in the overall preparedness (with a score of 83.5). The U.S. also scored the highest in a few specific categories, including prevention of the emergence of pathogens, early detection and reporting of epidemics, and sufficient and robust system to protect health workers. The U.S. was second to the U.K., though, in the category of rapid response to the spread of an epidemic.

I wonder what the predictive power of the Index has been given that the U.S. was among the countries with the highest per capita numbers of COVID-19 infections and COVID-19-related deaths? (Of note: New Zealand, a poster boy for handling the pandemic, came only 35th with the overall score of 54.0.)

Like every normal human being, I love guessing about what will happen tomorrow. And I know that organizations need to peek into the future to foresee upcoming threats and opportunities and to plan for the next steps. Yet, it worries me how fast some self-appointed Cassandras have rushed to tell us about our next future (a.k.a. “next normal”). Did you guys have enough time to figure out first what happened in the near past?

*     *     *

Why can experts be so wrong when predicting the future?

A 2019 neurobiology study provides a useful, if provocative, insight into the issue. A team of scientists analyzed neuronal activity in the brains of mice forced to learn new decision-making skills. As the mice progressed through learning new tricks, more and more neurons in their brains got involved. However, the neuronal activity rapidly became very selective:the individual neurons only responded when the mice made one choice and not another. This pattern became even stronger as the mice learned how to do a task better (i.e., became “experts”). Moreover, when the expertise was fully achieved, the mouse’s brain was ready for that expert decision even before the mouse began executing the task.

In other words, “expert” mice knew how to solve the problem even before starting to solve it! In contrast, the neuronal activities in the brains of “non-expert” mice remained non-selective, meaning that the mice were approaching the task with an “open mind.”

If we take the risk of extrapolating these results to humans, the implication would be that experts approach the problem with the patterns that are already pre-formed in their brains by their prior experience. So, when predicting the future, they see it as a slightly different version of the past and present they’re already familiar with.

*     *     *

To me, that means that predicting the future has a future only if the prediction process will begin systematically engaging large groups of people, experts and non-experts alike. I believe that the more people can be brought together (figuratively speaking, of course), the more granular picture of the future will emerge.

One useful prototype of such an approach could be Wikistrat, a geostrategic business consultancy that leverages crowdsourcing to deliver strategic intelligence. Many Wikistrat’s clients include government agencies interested in geopolitical scenario planning (and, on occasion, in the location of the next black swan hatching).

Corporations that value operational agility—and, therefore, unable to use a large-scale crowdsourcing format all the time—could use another, hugely underappreciated form of utilizing the proverbial “wisdom of crowds”: prediction markets, internal platforms allowing employees to speculate on future events and outcomes. A few large companies included Google have used corporate prediction markets to dramatically improve the quality of their decision-making.

And what is left to regular folks like me who can’t afford the expense of running a crowdsourcing campaign or prediction market? I don’t know about others, but I train myself not to be surprised with anything that tomorrow can bring, a task that was made much easier by watching the past five years of U.S. politics.

Image Credit:  Javier Allegue Barros on Unsplash

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Why ask your future customers only once about new product development, not twice?

Posted on April 9, 2021 by Eugene Ivanov

More and more firms have begun practicing the consumer-centric approach to new product development (NPD). As part of this approach, firms use sophisticated market research to identify unmet customer needs that could be converted into successful consumer products. Now, it’s time to take the next step and use crowdsourced NPD research to also ask consumers to help design the new products.

(This article was first published on Crowdsourcing Week)

My wife often complains that her hair dryer has been designed by a bunch of bald males. I see her point. True, the device does produce a stream of hot air (accompanied by a loud noise). But it is heavy, and its handle is way too thick for a small-size female’s hand. Besides, control buttons on the handle are positioned in such a way that you cannot operate the device with one hand. When asked if she would buy a hair dryer from the same brand again, my wife answered with a simple “no.”

If you build it, they will come. Will they?

My wife’s hair-dryer experience is hardly an exception. A list of failed innovations in the consumer area is depressingly long. In fact, consumers reject new products at an alarmingly high rate: the late Harvard Business School professor Clayton Christensen calculated that of more than 30,000 new consumer products launched every year, up to 95% fail.

What’s going on? Unfortunately, many firms still practice poor customer research supporting NPD, especially when it comes to specific design and features of new models. “Let’s build it, and they (customers) will come,” the thinking seems to go. But customers, overwhelmed with the sheer number of new offerings and spoiled with the flood of online reviews and recommendations, are not rushing to open their wallets (physical and digital alike) for subpar newcomers. Crowdsourced NPD research and product design certainly has scope to make improvements.

The dawn of customer-centricity approach?

Things have begun to change. Customer centricity—a framework that places the end user at the center of customer experience—is gradually becoming a leading paradigm for new product and services development. Many companies began employing a variety of novel, more sophisticated market research tools, including ethnography and netnography, to identify unmet customer needs (“jobs-to-be-done”) that could be potentially addressed by new and supposedly improved offerings.

One of such new tools elegantly combines product research and crowdfunding. Instead of offering finished products, companies now test consumer demand by collecting online “pre-orders” for products that are still in early development. Once used exclusively by startups, crowdfunding is rapidly becoming a part of the market research toolbox of grand brands like Amazon.

Thank you very much. See you later.

Interestingly, however, that after customer input has been collected and systematized through crowdsourced NPD research (“thank you very much”), customer centricity gets rapidly forgotten, and firms turn to internal R&D teams to address the newly identified customer needs. As the prevailing thinking has it, it is only the firm’s own professionals (marketers, product developers, engineers, etc.)—and no one else–who has knowledge and experience to transform customer needs into working ideas that could be eventually realized into commercially successful products (“see you later at the counter”).

Ironically, the assumption that customers know what they need, but don’t know how to make it, is seldom tested—and when tested, is proven wrong. In a 2012 article published in The Journal of Product Innovation Management, Poetz and Schreier compared novel product ideas generated by a firm’s professionals with those submitted by a crowd of users. The field of innovation was baby feeding products, and all the ideas were evaluated, blindly to their source, in terms of novelty, customer benefit, and feasibility.

The study showed that the ideas generated by the users scored significantly higher in terms of novelty and customer benefits–and only slightly lower in terms of feasibility–than those proposed by the firm’s own designers. Moreover, it was found that the ideas that received the highest overall marks came predominantly from the outside users. So much for internal expertise!

One more time about experts vs. crowds

Of course, one could argue that Poetz and Schreier’s study is an exception. As mentioned above, the field of innovation was baby feeding; the analysis of the users who took part in the idea generation process revealed that about 90% of them were females, many with firsthand experience in feeding babies and a sound technical knowledge of the related products. It is easy to imagine a recent mom with a solid technical background who can come up with better ideas for baby feeding products than a team of professional designers—the majority of whom, I suspect, were males with less than perfect knowledge of the baby-feeding process.

Although I’d love to see Poetz and Schreier’s study replicated in different settings and product areas, I do believe that it has much broader implications. It yet again dispels a popular myth that crowds of problem solvers are composed of “amateurs” and that when posed with a question that requires knowledge and expertise, not just an opinion, crowds are becoming useless (or, worse, outright stupid).

The truth that many experts are reluctant to accept is that properly assembled crowds are composed of experts. They may not work for your company or in your field, but they are experts, nonetheless. Take, for example, InnoCentive, a commercially available crowdsourcing platform with a solid track record of solving difficult scientific and business problems for corporate and non-profit clients. The InnoCentive proprietary crowd is composed of 400,000+ solvers, with almost 70% of them holding advanced degrees. I strongly suspect that some of them are women with experience in feeding babies; I’m also sure that many of them have strong opinions about their hair dryers and other household products.

Firms would be wise to ask them—and other solvers—about products they need through crowdsourced NPD research. Firms would be even wiser to take the next step to ask for help in actually designing these new products.

Check out my eBook, “We the People of the Crowd…,” a collection of stories about crowdsourcing reflecting my personal experience in working with corporate and nonprofit clients.

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Don’t bring me eggs…Sorry, I meant problems.

Posted on March 22, 2021 by Eugene Ivanov

It appears that the resistance to the time-tested management wisdom “Don’t bring me problems, bring me solutions” has reached a critical mass. Writing back in 2017 for Harvard Business Review, Sabina Nawaz suggested to “retire the saying” and replace this type of mentality with a process of bringing up problems “in a more productive way.”

By now, the fallacy of prioritizing solutions over problems is evident to many. A recent piece warns corporate leaders that the “solutions-only thinking” damages innovation. Worse, it can blind leaders to potential downsides that can eventually culminate in a crisis.

I’m happy to say that innovation managers, myself included, have always hated the “don’t bring me problems” line. We insisted that a thorough investigation of the underlying problems must precede every innovation project; collecting solutions can only start when the problems are spotted, defined, and properly articulated. (Those with a habit of quoting Albert Einstein on every occasion like to mention this one in this context: “If I had an hour to solve a problem, I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.”)

And yet, I’m not ready to swing myself to the “problem-first” extreme of the pendulum. To me, the discussion of what is more important, problems or solutions, reminds of the centuries-old philosophical battle over which came first, the chicken or the egg. I believe that instead of choosing sides—and even inventing better ways of bringing up problems—managers should take a more holistic approach and establish a sustained problem-solving process.

With such a process in place, the question of which is more important, a problem or a solution, is simply irrelevant. Small teams and large organizations alike will be constantly looking for problems, both old and emerging, and defining these problems in a systematic and actionable way. A solution-generating phase, involving various techniques (brainstorming, co-creation with customers, internal and external crowdsourcing, etc.) will follow, with the best solutions being selected and implemented. A solved problem will be automatically replaced by the next waiting for a solution.

The existence of a sustainable portfolio of problems-to-be-solved should also extract the best from the firms’ employees. Some people are better at sensing troubles and spotting trends, whereas others excel at finding fixes. With a constant flow of problems and solutions, everyone will find something to get excited and engaged.

But what are we going to do with the “don’t bring me problems” line itself? I’d suggest trying this instead: “Bring me problems, then solutions, then problems again…” Or anyone can propose a shorter version of the same?

Check out my eBook, “We the People of the Crowd…,” a collection of stories about crowdsourcing reflecting my personal experience in working with corporate and nonprofit clients.

Image credit: Daniel Tuttle on Unsplash

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